terna societe anonyme tourism technical shipping company

100 Pages·2017·1.18 MB·English

TERNA SOCIETE ANONYME
TOURISM TECHNICAL SHIPPING COMPANY
85 Mesogeion Ave., 115 26 Athens
General Commerce Reg. No. 8554301000
S.A. Reg. No. 56330/01/Β/04/506(08)

ANNUAL FINANCIAL REPORT

for the period

1 January to 31 December 2017
CONTENTS

I. INDEPENDENT AUDITOR’S REPORT ............................................................................................... 3
II. ANNUAL REPORT OF THE BOARD OF DIRECTORS FOR THE FINANCIAL YEAR 2017 ...................... 6
III. ANNUAL FINANCIAL STATEMENTS SEPARATE AND CONSOLIDATED OF 31 DECEMBER 2017 (1
January - 31 December 2017) ...................................................................................................... 18
STATEMENT OF FINANCIAL POSITION………………………………………………………………………………………….19
STATEMENT OF COMPREHENSIVE INCOME…………………………………………………………………………………21
STATEMENT OF CASH FLOWS………………………………………………………………………………………………………23
STATEMENT OF CHANGES IN EQUITY………………………………………………………………………………………….25
1. ESTABLISHMENT AND ACTIVITY OF THE COMPANY AND THE GROUP ....................................... 27
2. BASIS FOR THE PRESENTATION OF THE FINANCIAL STATEMENTS .............................................. 28
3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES .............................................................. 35
4. STRUCTURE OF THE GROUP AND THE COMPANY ....................................................................... 47
5. GEOGRAPHIC SEGMENTS ............................................................................................................ 50
6. TANGIBLE FIXED ASSETS .............................................................................................................. 50
7. INTANGIBLE FIXED ASSETS .......................................................................................................... 56
8. IMPAIRMENT OF GOODWILL ....................................................................................................... 59
9. INVESTMENT PROPERTY .............................................................................................................. 60
10. PARTICIPATION IN SUBSIDIARIES ................................................................................................ 61
11. PARTICIPATION IN JOINT VENTURES ........................................................................................... 62
12. INVESTMENTS HELD FOR TRADING PURPOSES ........................................................................... 64
13. INVESTMENTS AVAILABLE FOR SALE ........................................................................................... 64
14. OTHER LONG-TERM RECEIVABLES ............................................................................................... 65
15. INVENTORIES ............................................................................................................................... 65
16. TRADE RECEIVABLES AND PREPAYMENTS AND OTHER SHORT-TERM RECEIVABLES ................. 66
17. CONSTRUCTION CONTRACTS ...................................................................................................... 67
18. CASH AND CASH EQUIVALENTS ................................................................................................... 68
19. SHARE CAPITAL AND RESERVES ................................................................................................... 69
20. LONG-TERM LOANS AND FINANCIAL LEASES .............................................................................. 70
21. OTHER LONG-TERM LIABILITIES .................................................................................................. 72
22. PROVISION FOR STAFF INDEMNITIES .......................................................................................... 73
23. OTHER PROVISIONS ..................................................................................................................... 74
24. GRANTS ........................................................................................................................................ 76
25. SUPPLIERS, ACCRUED AND OTHER SHORT-TERM LIABILITIES ..................................................... 76
26. SHORT-TERM LOANS ................................................................................................................... 77
27. INCOME TAX ................................................................................................................................ 78
28. TURNOVER ................................................................................................................................... 83
29. COST OF SALES, ADMINISTRATIVE EXPENSES AND RESEARCH & DEVELOPMENT EXPENSES ..... 84
30. AUDITORS’ FEES ........................................................................................................................... 86
31. PAYROLL COST ............................................................................................................................. 86
32. OTHER INCOME/(EXPENSES) ....................................................................................................... 86
33. FINANCIAL INCOME/(EXPENSES) ................................................................................................. 87
34. TRANSACTIONS WITH RELATED PARTIES .................................................................................... 88
35. AIMS AND POLICIES OF RISK MANAGEMENT .............................................................................. 90
36. PRESENTATION OF FINANCIAL ASSETS AND LIABILITIES PER CATEGORY .................................... 95
37. POLICIES AND PROCEDURES FOR CAPITAL MANAGEMENT ........................................................ 97
38. CONTINGENT LIABILITIES ............................................................................................................. 98
39. EVENTS AFTER THE REPORTING DATE OF THE FINANCIAL STATEMENTS ................................. 100
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I. INDEPENDENT AUDITOR’S REPORT

To the Shareholders of ΤERNA SOCIETE ANONYME TOURISM TECHNICAL SHIPPING COMPANY

Report on the Audit of the Separate and Consolidated Financial Statements

Opinion
We have audited the accompanying separate and consolidated Financial Statements of ΤERNA
SOCIETE ANONYME TOURISM TECHNICAL SHIPPING COMPANY (the Company), which comprise the
separate and consolidated statement of financial position as at December 31, 2017, the separate and
consolidated statements of comprehensive income, changes in equity and cash flows statement for
the year then ended, and a summary of significant accounting principles and methods and other
explanatory notes.
In our opinion, the abovementioned separate and consolidated Financial Statements present fairly, in
all material respects, the financial position of ΤERNA SOCIETE ANONYME TOURISM TECHNICAL
SHIPPING COMPANY and its subsidiaries (together the “Group”) as at December 31, 2017, and its
financial performance and the consolidated Cash Flows for the year then ended in accordance with
International Financial Reporting Standards that have been adopted by the European Union in
compliance with the regulatory requirements of C.L. 2190/1920.

Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs) as
incorporated in Greek Law. Our responsibilities under those standards are further described in the
Auditor's Responsibilities for the Audit of the separate and consolidated Financial Statements section
of our report. We are independent of the Group in accordance with the International Ethics
Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) as
incorporated in Greek Law, together with the ethical requirements that are relevant to our audit of
the separate and consolidated financial statements in Greece, and we have fulfilled our other ethical
responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Matter

The separate and consolidated financial statements of the Company for FY ended as at 31 December
2016 have been audited by another auditing firm. Regarding the FY in question, on 26/04/2017, the
Certified Chartered Accountant issued Unqualified Opinion Auditor’s Report.

Other information
Management is responsible for the other information. The other information comprises of the Board
of Directors Report, for which reference is also made in section Report on Other Legal and Regulatory
Requirements, but does not include the financial statements and our auditor's report thereon.
Our opinion on the separate and consolidated financial statements does not cover the other
information and we do not express any form of assurance conclusion thereon.

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In connection with our audit of the separate and consolidated financial statements, our responsibility
is to read the other information identified above and, in doing so, consider whether the other
information is materially inconsistent with the separate and consolidated financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the
work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Management for the separate and consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these separate and
consolidated financial statements in accordance with International Financial Reporting Standards, as
adopted by the European Union, and for such internal control as management determines is
necessary to enable the preparation of separate and consolidated financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the separate and consolidated financial statements, management is responsible for
assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless, management either intends
to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor's Responsibilities for the Audit of the separate and consolidated Financial Statement
Our objectives are to obtain reasonable assurance about whether the separate and consolidated
financial statements as a whole are free from material misstatement, whether due to fraud or error,
and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs as incorporated in
Greek Law, will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these separate and
consolidated financial statements.
As part of an audit in accordance with ISAs as incorporated in Greek Law, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the separate and consolidated
financial statements, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Group's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group's ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor's report to the related disclosures in the separate
and consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor's report. However, future events or conditions may cause the Group to cease to
continue as a going concern.
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• Evaluate the overall presentation, structure and content of the separate and consolidated
financial statements, including the disclosures, and whether the separate and consolidated
financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group, to express an opinion on the separate and
consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with management regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.

Report on Other Legal and Regulatory Matters
Taking into consideration the fact that under the provisions of Par. 5, Article 2 (part B), Law
4336/2015, the management is responsible for the preparation of the Board of Directors’ Report, the
following is to be noted:
a) In our opinion, the Board of Directors’ Report has been prepared in compliance with the effective
legal requirements of Article 43a and 107A, CL 2190/1920, and its content corresponds to the
accompanying separate and consolidated financial statements for the year ended as
at 31/12/2017.
b) Based on the knowledge we obtained from our audit for the Company ΤERNA SOCIETE ANONYME
TOURISM TECHNICAL SHIPPING COMPANY and its environment, we have not identified any
material misstatement to the Board of Directors report.

Athens, 27th April, 2018
The Chartered Accountant

Pavlos Stellakis
SOEL Reg. No.: 24941

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II. ANNUAL REPORT OF THE BOARD OF DIRECTORS FOR THE FINANCIAL YEAR 2017

The present report of the Board of Directors for the closing period from 01/01/2017 to 31/12/2017,
which includes the audited separate and consolidated financial statements, the notes on the financial
statements and the audit report of the Certified Auditor, has been prepared according to the
provisions of CL 2190/1920 (article 43a paragraph 3 article 107A par. 3 and article 136 par.2).

Α. Financial Developments & Performance for the Year

Despite the improvement that has been achieved in the Fiscal Figures, the constant delays seen in
the fulfillment of various obligations on behalf of the Greek State towards the Private Sector (VAT
rebate, non-payment of interest on the delayed VAT rebate, payment of grants, etc.) in combination
with the frequent changes of taxation and insurance legislation, as well as the limitations in the free
movement of capital, affected negatively the economic activity, making even more difficult the
efforts to attract investments in the country and boost employment level.

Furthermore, the Banks mainly due to the uncertainty regarding the resolution of the problem of
non-performing-loans were not in position to pour credit in the market while at the same time they
offered loans based on high interest rates and deposits based on zero-level interest rates. The above
developments aggravated the financial burden of the market and delayed the material “restart” of
the Greek economy.

It is noted that the construction of large motorway projects in which our Group also participated,
contributed directly to the economy due to the substantial domestic added value, the increase in
employment with tens of thousands new jobs (new salaries – social security fund contributions –
payment of taxes and duties, etc.).

Under this context, TERNA Group continued its investment plan in Greece and abroad concerning the
execution equipment of projects as well as the industrial segment of magnesium production, as its
capital structure remains satisfactory.

Our Group, despite the prevailing difficulties, continues to be present abroad since a significant part
of its revenues in construction and energy stems from the countries of the S.E. Europe and Middle
East.

The most important Financial Figures of 2017 according to the International Financial Reporting
Standards are as follows:

Turnover to third parties, from continuing activities, reached EUR 895 million approximately versus
EUR 952 million in 2016, posting a decrease by 6%.

Turnover, which amounted to EUR 895 million, was attributed by 86.4% to activities in Greece (versus
79% in the previous period), by 2.8% to activities in Balkan countries (versus 4.7% in the previous
period), by 10% (versus 16% previously) to activities in Middle East, and by 0.8% to activities in Malta,
Libya and W. Europe (versus 0.3% previously).

The backlog of signed construction contracts on 31.12.2017 amounts to about EUR 1,583 million
versus EUR 2,421 million at the end of 2016. It is noted that 14% (versus 17% at the end of the
previous year) of the backlog concerns projects executed abroad.

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Operating profit before interest, taxes, depreciation and amortization (EBITDA) settled at EUR 98.1
million versus EUR 135.94 million in the previous year. At the same time, earnings before interest and
tax (EBIT) settled at EUR 79.1 million versus EUR 113.37 million in the previous year.

The item “Operating results (EBIT)” is defined as Gross profit, minus Administrative and distribution
expenses, minus Research and development expenses, plus/minus Other income/(expenses) except
for the payment and valuation related Foreign exchange differences, the Recoveries of impairments
(Impairments / eliminations) of fixed assets, the Recoveries of impairments (Impairments /
eliminations) of inventories, the Provisions, the Recoveries of impairments (Impairments /
eliminations) of trade receivables and of the Results from participations and securities as presented
in the accompanying financial statements.

The item “EBITDA” is defined as the Operating results (EBIT), plus depreciations of fixed assets, minus
the grants amortization, as presented in the attached financial statements.

The financial year 2017 resulted into earnings before taxes amounting to EUR 58.71 million versus
earnings before taxes of EUR 51.91 million for financial year 2016, posting an increase of 13%
approximately.

Results after taxes and minority rights amounted to earnings of EUR 28.84 million, versus earnings of
EUR 25.26 million in the previous financial year.

Net Debt of TERNA Group (cash and cash equivalents less bank debt) settled on 31.12.2017 at
approximately plus EUR 61.78 million compared to plus EUR 250.26 million on 31.12.2016.

The Group’s equity amounted to EUR 151.78 million, compared to EUR 138.76 million on 31.12.2016.

The Total Assets of the Group amounted to EUR 1,238 million versus EUR 1,371 million on
31.12.2016.

The Board of Directors of the Company proposes the non-distribution of dividend concerning the
year 2017.

Β. Important Events for the Year 2017

The Company, almost all Greek Construction Companies as well as a significant number of foreign
companies, were audited by the Hellenic Competition Commission (HCC) regarding their acts and
actions, which could be considered that they could lead to a violation of the relevant rules.
Subsequently, the Company, on the basis of Article 25a of Law 3959/2011 as well as the decision of
the Plenary Session of the HCC no. 628/2016, submitted after very cautious and extended
consideration, for reasons of clear corporate interest and in order to implement the beneficiary
provisions of Article 25A and 14 par. 2 case id (ee) of Law 3959/2011 and the 628/2016 Decision of
the HCC regarding the terms, conditions and procedure for the settlement of disputes in cases of
horizontal counterparty agreements in violation of article 1 of Law 3959/2011 and /or article 101 of
the Treaty on the Functioning of the European Union, a request for inclusion in the envisaged dispute
settlement procedures, namely in a process of consensual resolution.
On 03.08.2017, the Company TERNA SA was notified about the decision numbered 642/2017 of the
Hellenic Competition Commission according to which a fine of 18,612 was imposed to the Company
concerning violation of Article 1 of Law 3959/2011 and of Article 101 of the Treaty on the Functioning
of the European Union (for the period from 11.5.2005 to 4.1.2007 and from 4.6.2011 to 26.11.2012).
The settlement procedure was finalized and a fine of 18,612 was imposed. It should be noted that
with regard to this fine, the Company and the Group have already included in the Financial
Statements of the year 2016 a related provision of 19,000 (see note 22 in the financial statements of
2016).
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On 30.05.2017 the Association of Entities "TERNA SA" - GMR Airports Limited" was declared
Temporary sponsor of the project " Study, Construction, Financing, Operation, Maintenance and
Exploitation of the New International Airport of Heraklion Crete as well as Study, Construction and
Financing of its Road Connections ". The signing of the agreement is expected to take place up until
the third quarter 2018.

Within the fourth quarter of 2017, the Certificate of Completion of works for the Period of Studies -
Construction of the Concession Projects of Ionia Road, Central Greece and Olympia Road was issued,
in accordance with the relevant Agreements signed by the Group and the Greek State on 11.5.2016
(for Ionian Concessions Road & Central Greece) and 25.07.2016 for Olympia Road, through which the
new delivery times and the restoration of delay events have been finalized.

On 01.12.2017, the parent company GEK TERNA signed a EUR 193.95 million Secured Bond Loan
Program with Greek Credit Institutions in order to refinance existing loans to Group companies of
which an amount of EUR 81.74 million concerned TERNA SA. The basic terms of this Bond Loan are a
borrowing cost of 4.5%-5.5% depending on the interest rates and a repayment period up to 2023.

After the adoption of the new IFRS 11, the company “HERON II S.A.” is being consolidated through
the equity method. In the current period, the earnings after taxes which have been incorporated
amounted to 0.4 million euro compared to 0.4 million euro in 2016.

The Group is engaged in the production of quarry products and in the extraction and processing of
magnesite through the licenses and mining concessions it holds.

The Management estimating that the demand for caustic magnesia will be high in the coming years,
has started a considerable investment program of total estimated amount of 100 mil euro in its self-
owned facilities at Mantoudi Evia for the extraction and treatment of magnesium, for the production
of caustic mag CCM, magnesia (DBM) and magnesium hydroxide (MDH) products through its
subsidiary TERNA LEYKOLITHI (or TERNA MAG) SA.

The turnover of TERNA MAG SA amounted to 7 million euro versus 3.3 million euro in 2016.

C. Significant Events after the end of the period 2017

On January 30, 2018, the coverage, as a whole, of the 1.12.2017 signed Common Secured Bond Loan
of 193.95 million Euros of the parent company GEK TERNA, was completed by Greek Credit
Institutions. By this manner, the purpose of refinancing the existing loans of the parent Company was
fulfilled. Through the above loan of the parent company GEK TERNA, loans amounting to 81.74
million of TERNA SA were repaid.

On 2.2.2018 the Group signed a contract with M.M. Makronisos Marina Ltd for the execution of the
following projects in connection with the development of the Marina of Agia Napa: villas, towers and
commercial buildings, with a conventional objective of 163.4 million.

D. Risks and Uncertainties

The Group’s activities are subject to several risks and uncertainties, such as market risk (volatility in
exchange rates, interest rates market prices etc.), credit risk and liquidity risk.

In order to handle the financial risks, the Group has a risk management program that aims to
minimize the negative effect on the financial results of the group that emerges from the inability to
predict financial markets and the volatility of the cost and sales variables.
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The financial instruments of the group are mainly deposits in banks, loans, trade and other debtors
and creditors, receivables from construction contracts, loans to affiliated companies, investments in
equities, dividends payable, long-term and short-term liabilities from leasing agreements and loans.

Following, the effect of basic risks and uncertainties on the Group’s activities is presented.

Market risk

The Group is exposed to a risk related to the change in the fair value of the Investments available for
sale which may affect the Financial Statements.

Foreign exchange risk

Foreign exchange risk is the risk that results from the fact that the fair value of future cash flows of a
financial instrument will be subject to fluctuations due to changes in exchange rates.

This type of risk may result, for the Group, from foreign exchange differences due to valuation and
conversion into the Group’s currency of financial assets, mainly receivables and financial liabilities
from transactions agreed in currency other than the operating currency of the Group’s entities as
well as from operating currencies of the Group’s entities other than the Euro which is the reporting
currency of the financial statements. The transactions mainly concern purchases of fixed assets and
inventories, commercial sales, investments in financial assets, loans, as well as net investments in
foreign operations. The Group operates through branches and companies in Greece, the Middle East
and the Balkans and thus it may be exposed to foreign exchange risk.

As regards to the construction projects in the Balkans: the contractual receivables, liabilities to basic
suppliers (cement, iron products, asphalt, cobble, skids etc) and sub-contractors are realized mainly
in euro and thus the exposure to foreign exchange risk is limited. Moreover, the Bulgarian lev (BGN)
has a fixed exchange rate against the euro.

As regards to the construction projects in the Middle East, the contractual receivables, liabilities to
basic suppliers (concrete, iron products, asphalt, cobble, skids etc) and sub-contractors are realized in
local currencies, which are pegged to the US dollar (USD) and thus there is exposure to foreign
exchange from change in the EUR/USD exchange rate.

To manage this category of risk, the Group’s Management and the financial department makes sure
that the cash management of the Group is covered against changes in foreign exchange rates.
Furthermore, it makes sure that the largest possible part of receivables (income) and liabilities
(expenses) are realized in euro or in currencies pegged to the euro (i.e. the Bulgarian lev (BGN) or in
the same currency in order to be matched against each other.

Regarding the transactions of the company with foreign companies, these mainly take place with
European groups and the settlement currency is euro.

Interest rate risk

The Group’s policy is to minimize its exposure to interest rate risk as regards to long-term financing.
Due to the limited exposure to such financing, the Group does not enter interest rate swap
agreements to cover interest rate risk.

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Almost the entire long-term debt and financial leases held by the Group at the end of the present
year from banks was based on floating rates by 99.5% (and by 99.3% at the end of the previous fiscal
year). The remaining part was based on fixed rate.

Due to the short-term nature of the placements in cash reserves, these are based on floating interest
rates, whereas the entire receivables from loans granted to affiliated companies are based on fixed
rates.

The short-term debt of the Group is based by 99.95% on floating rates linked to Euribor and by 0.05%
on fixed rates, and is agreed on local currencies for any Group company. Short-term loans are
received mainly either as working capital or as funding for the Group’s construction investments.
Such loans are repaid from the collection of trade receivables. Therefore, the Group is exposed to
interest rate risk emanating from its short-term and long-term debt based on floating rates.

Due to the short duration of the placements in cash and cash equivalents, these placements are
based on floating interest rate, whereas the entire amount of loans towards associate companies is
based on fixed interest rate.

Credit risk

The credit risk relates to the potential loss resulting from the inability of a counterparty participating
in a financial transaction to fulfill its obligation and make the respective payment to the other
counterparty.

The Group continuously monitors its receivables, either separately or by groups and it incorporates
the resulting information in its credit control. When necessary, external reports or analyses are used
as regards to existing or potential clients.

The credit risk for cash equivalents as well as for other receivables is not considered as significant,
given that the counter parties are reliable banks having a high grade capital structure, the Greek
state or companies of the broader public sector, or powerful business groups. Despite the above,
these receivables are under a special status and if required additional adjustments will be made.

The management views that all financial assets for which special impairments have been formed, are
characterized of high credit quality.

Liquidity Risk

The Group manages its liquidity needs by carefully monitoring the balance of long-term financial
liabilities as well as payments that take place on a daily basis. The liquidity needs are monitored at
different time zones, on a daily and weekly basis, as well as on the basis of a moving 30-day period.
The liquidity needs for the next 6 months and the next year are set on a monthly basis.

The Group maintains cash and cash equivalents in banks to cover its liquidity needs for periods up to
30 days. Capitals for mid-term liquidity needs are released from term deposits.

Risks due to the current economic conditions prevailing in Greece

The measures implemented for the realization of the program’s provision (tax and insurance) agreed
with the Lenders, the failure to solve the Banks' problem regarding the non-performing loans,
negatively affected the existing economic climate.

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